We often come across companies that have set an ambitious long-term goal … but have devloted almost not intellectual effort to thinking through the medium-term capability-building program that is needed to support that goal. In too many companies there is a grand, and overly vague, long-term goal on one hand (“Let’s take a vacation” rather than “Let’s go to Paris“), and detailed short term budgets and annual plans on the other hand (“What route should I take home tonight, given the massive traffic jam along my usual route?”), with nothing in between to link the two together (“I need to schedule some time off and call my travel agent, and I need to read some guide books”). There seems to be, in many companies, an implicit assumption that the short term and long term abut each other, rather than being dovetailed together. But the long term doesn’t start at year five of the current strategic plan. It starts right now!” … A strategic architecture … shows the organization what what competencies it must begin building right now, what new customer groups it must begin to understand right now, what new channels it should be exploring right now, what new development priorities it should be pursuing right now to intercept the future.

To build a strategic architevture top management must have a point of view on which new benefits, or “functionalities,” will be offered customers over teh next decade or so, on what new core competencies will be needed … For example, a textbook publisher that is alert to technology trends and is imaginative enough to envision their potential impact might dream of an “electronic textbook” … To turn this dream into reality, the publishers must determine which competancies will have to be accessed, acquired, or strengthened to deliver the “customizable” functionality … The publisher may also have to rethink how it takes textbooks to market … Strategic architecture is a high-level map of interstate highways, not a detailed map of city streets.

The goal of many new venture programs seems to be to create a greenhouse in which 1,000 flowers can bloom. But a lack of corporate conviction about the opportunities being pursued, and the inability of ventures managers to access the firm’s worldwide competitive resources, give the greenhouse little more than six inches of headroom.

Many times what are described as today’s implementation failures are really yesterday’s foresight failure in disguise. IBM’s fat overheads were manageable when computers carried the gross margins of illicit drugs; IBM’s overheads threatened to sink the company when computers became commodities with the margins of canned vegetables. An IBMer in the early 1990s might well have argued that “it’s not a vision we need, it’s a lower cost structure and faster development times.” To this, we would answer, “Of course you need to reduce costs – but why didn’t you begin working on the cost problem a decade ago?” … The quality deficit, which cost U.S. automakers so much market share in the 1970s and 1980s was more than just “poor execution.” Japanese auto companies realized decades ago that new and formidable competitive weapons would be needed to beat U.S. car companies in their home market. Twenty years later, Toyota’s foresight had become GM’s implementation nightmare.

In recent years, some have questioned wheather a company needs a “vision” at all. Adaptiveness, solid implementation, and basic blocking and tackling are increasingly regarded as more important than vision … Often, pundits criticize a company’s vision when what is really at fault is the company’s executional capability. Apple Computer has had more foresight than most companies in this idustry, yet it has also committedd its fair share of executional blunders. This doesn’t take anything away from the quality of Apple’s foresight, it just proves the point that foresight isn’t enough … On the other hand, terrific executional ability, in the absense of industry foresight, is not enough to guaranteee future success

Industry foresight helps managers answer three critical questions. First, what new types of customer benefit should we seek to provide in five, ten, or fifteen years? Second, what new competencies will we need to bulid or acquire to offer those benefits to customers? And third, how will we need to recognize the cusotmer interface over the next several years? Essentially, a point of view about the future is a point of view about benefits, competencies, and customer interface.

We often ask senior managers three related questions: First, what percentage of your time is spent on external, rather than internal, issues–understanding, for example, the implications of a particular new technology versus debating corporate overhead allocations? Second, of this times pent looking outward, how much of it is spent considering how the world could be different in five or ten years, as opposed to worrying about winning the next big contract or how to respond to a competitor’s pricing move? Third, of the time devoted to looking outward and forward, how much of it is spent in consultation with colleagues, where the objective of it is to build a deeply shared, well-tested view of the future, as opposed to a person a idiosyncratic view?

The answer we get typically conform to what we call the “40/30/20” rule … Thus, on average, senior management is devoting less than 3% (40% x 30% x 20% = 2.4%) of its energy to building a corporate perspective on the future.

Gatorade was being challenged by Powerade. And Powerade was coming into the market. They were backed by Coca-Cola. They had a cheaper energy drink. They were taking share away from Gatorade. And Gatorade started spinning out more flavors to combat power. And all that happened was that sales didn’t go anywhere, costs went up, and Powerade continued to gain share. Well, what Gatorade did is it went out and looked at those serious athletes to try and understand what they really wanted from the drink. And what they found is that serious athletes really cared about doing well at athletic events and that doing well often involved much more than hydration during the event. It involved preparing for the event, and then hydrating during, and then recovering after. And so Gatorade worked with other parts of PepsiCo, their corporate parent, like Quaker Oats, to develop sports bars and energy chews and protein shakes and things like that to help support the entire athletic event. It diversified the sources of income for Gatorade. And if one of those fails, it doesn’t really matter. The risk is much lower. When you look at just the drink, what you’d see back in 2009 when this strategy really kicked in is that there were fewer varieties of drink, but the drink sales went up, because they had this whole solution around the drink. And it brought people back to the drink.

… management is fighting the competition, not dating the customer. They’re just thinking about, what’s my share against this competitor, and how can I get that back. And so they commission a team whose job it is to do a better product than the competition. And that may work in the short term, but it’s very hard to make it work in the long term. And so it may just be that internal view in the company, that we tend to see the world through this lens of, what’s our relative share. And maybe if we’re a senior manager in charge of a business unit, we’re bonused on that, it’s how well we’re doing against the competition. And so it ends up creating this whole incentive system and process and structure and roles around fighting the competition, not dating the customer.

One of the most vexing aspects of the minimum viable product is the challenge it poses to traditional notions of quality … These discussions of quality presuppose that the company already knows what attributes of the product the customer will perceive as worthwhile … If we do not know who the customer is, we do not know what quality is … MVPs require the courage to put one’s assumptions to the test. If customers react the way we expect, we can take that as confirmation that our assumptions are correct. If we release a poorly designed product and customers (even early adopters) cannot figure out how to use it, that will confirm our need to invest in superior design … Thus, the Lean Startup method is not opposed to building high-quality products, but only in service of the goal of winning over customers.

Eric Ries, Lean Startup, (p. 106-109)

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